Saturday, September 02, 2006

2011? Do I hear 2014?

Hungary's probable entry into the euro (probable in the sense of not being completely impossible) is shifting. Not before 2010 we were told earlier this month and, although the country's convergence plans were accepted this Friday by the EU as being more plausible than the earlier ones, the chances of anything happening before 2011 or, even, 2014 are unlikely.

Whether entering the euro is quite the solution for Hungary's multiplying economic problems is questionable, but that some reforms need to be introduced is certain.

Finance Minister János Veres has promised that the country will meet the EU's convergence criteria by 2009. Among other matters this would mean reducing the budget deficit from the 10.1 per cent of GDP, forecast for 2006 to 3.2 per cent.

"The government's euro adoption plan foresees a budget deficit of 6.8 percent of GDP in 2007, followed by 4.3 percent in 2008 and 3.2 percent in 2009.

The six-year plan begins by focusing on creating long-term balance in 2006-2009. A more dynamic, second period between 2009 and 2011 is meant to steadily boost Hungary's economic standing."

Hungarian central bank President Zsigmond Járai remains dissatisfied with the programme despite it being welcomed by Luxembourg's Prime Minister Jean-Claude Juncker, who heads Eurogroup, the committee of euro-zone finance ministers.

""Hungary's convergence plan "focuses too much on the revenue side", the central bank said in a separate statement on its Web site, adding the "program still underestimates the inflationary impact of the measures". The bank also said that without further austerity measures, the country's budget deficit may not be reduced after 2008."

Given the economic circumstances of most of the ten new member states it remains unlikely that any of them will join the euro in a hurry unless, the rules are bent, just a little, as they were for several of the original members.